Legislation Novelties in 2007, July 2007

03.08.2007
Changes to the Law of Ukraine "On Commercial Enterprises" Became Effective from June 20, 2007

New Forms of Registration Documents Ratified
in 2007


Year 2007 Brings Changes to the Procedure and Order of Stock Issue Registration, Maintenance of Register of Nominal Securities Owners, Increase and Decrease in the Statutory Capital of Joint-Stock Companies

New List of Branches or Spheres of Activities, Where Establishment of State Holdings During the Process of Corporatisation and Privatization is Prohibited

Mechanism of Additional Issue, Repurchase of Stock and Deposition of Additional Holdings to Commercial Enterprises With State Share Introduced
Starting in 2008 the Term of Assignment of Residents' Foreign Currency Profit to Their Currency Accounts is Extended from 90 to 180 Days

Starting in 2008, the State Duty for Notarial Certification of Articles of Association of Legal Entities will be UAH 17

Taxation of Profits of Non-Residents from the Sale of Real Estate

Order of Registration of Tax Inspection Results Modified
Law Suit against the State Committee on Entrepreneurship May Result in a New Order of State Acts Issuance
Mortgage (or bank guarantee) now necessary for registration of intellectual property objects at the State Custom Service
As from June 20, 2007 an employer is no longer obliged to pay a dismissal wage when discharging an employee in connection with a summons into military or alternative service
Cabinet of Ministers of Ukraine to tighten the rules for entry and transit through Ukraine of foreigners and stateless persons

Alterations to the Regulation on the order and terms of foreign currency trading introduced

Changes to the Law of Ukraine "On Commercial Enterprises" Became Effective from June 20, 2007

The law of Ukraine, On introducing alterations and declaring unenforceable some legislative acts of Ukraine in connection with adoption of the Civil code of Ukraine dated April, 27 2007 altered and complemented several norms of the Law of Ukraine, On Commercial Enterprises. Theses changes brought the Law of Ukraine On Economic Societies in conformity with the Civil Code of Ukraine and Commercial Code of Ukraine.

In addition, some new norms were introduced relating to the activities of commercial enterprises.

The number of participants of a limited liability company must not exceed ten persons, and if there are more than 10 participants, such limited liability company must be reorganized into a joint-stock company.

Another substantial change is that now, decisions concerning the creation and cessation of activity of associated companies, branches and representative offices do not require an absolute majority of votes (i.e. consent of 3/4 of shareholders) any more. From now on, a simple majority of votes will govern such decisions.

Legal entities established prior to June 20, 2007 must within a year from the effective date of the law bring their articles of association into accordance with the changes listed above. Before making such changes, legal entities must follow provisions of operating regulations in part, not conflicting with the introduced changes. Note that there is no registration fee for introducing changes to the articles of association to satisfy this requirement.

New Forms of Registration Documents Ratified in 2007

1On June, 19, 2007, a new form of certificate from the Unified State Register of Enterprises and Organizations of Ukraine (USREOU) was introduced by the Order of the State Committee of Statistics of Ukraine. However, certificates issued prior to the effective date of this Order remain operative, i.e. there is no need to replace old USREOU certificates with new ones.

New forms of registration cards (Form No 1- Form No 15) used for conducting a number of registration operations became effective as of May 3, 2007. This should be borne in mind while filing registration cards with the relevant authorities for conducting registration operations, as the old cards will not be accepted. The new registration cards were ratified by the Order of the State Committee on Regulatory Policy and Entrepreneurship dated April 20, 2007. The respective forms are included within this Order.

Also the Order of the State Committee on Regulatory Policy and Entrepreneurship dated April 16, 2007 introduced changes to the form of extract from the Unified State Register of Legal Entities and Individual Entrepreneurs. The Committee excluded a record concerning the form of ownership of legal entity but instead included data regarding the number and series of passport (for physical persons who due to religious convictions or other beliefs refuse to accept identification code, with relevant notice hereon in their passport).

On April 27, 2007 the changes to the order of filing of a form of certificate on state registration of a legal entity and individual entrepreneur were introduced. Accordingly, as soon as the changes become effective, certificates on registration of legal entities and individual entrepreneurs, including their replacement in cases prescribed by the law, will be issued on a new form. However, the Order has no provisions regarding the requirement to replace old certificates with the new ones.

Year 2007 Brings Changes to the Procedure and Order of Stock Issue Registration, Maintenance of Register of Nominal Securities Owners, Increase and Decrease in the Statutory Capital of Joint-Stock Companies

A number of Statutes of the State Commission on Securities and Capital Market - regulating changes in statutory capital, registration of stock issue and order of maintenance of registers of shares in joint-stock companies -- were brought into compliance with the Law of Ukraine, On Securities and Capital Market, adopted on February, 23, 2006.

Also such legal acts as the Statute on the Order of Increase (Decrease) in the Statutory Capital of Joint-Stock Company, effective as of March 28, 2007, Statute on the Order of Registration of Capital Issue, effective as of June, 12, 2007, Statute on the Order of Maintenance of Registers of Owners of Nominal Securities, effective as of January, 22, 2007 were altered.

New List of Branches or Spheres of Activities, Where Establishment of State Holdings During the Process of Corporatisation and Privatization is Prohibited

In accordance with the Decision of the Cabinet of Ministers of Ukraine dated May, 12, 2007, establishment of state holdings is prohibited during the process of corporatisation and privatization in the followings industries: jewellery industry; land-utilization services, valuation of land plots; fuel and energy complex; and also telecommunications and housing and utilities services.

However, establishment of a state holding company in the field of housing and utilities services is possible if natural monopolies and commercial enterprises operating in competition markets are simultaneously included in its structure.

Mechanism of Additional Issue, Repurchase of Stock and Deposition of Additional Holdings to Commercial Enterprises With State Share Introduced

The Decision of the Cabinet of Ministers of Ukraine dated June, 6, 2007 No. 797 ratified the order of decision-making in relation to additional stock issue in joint-stock companies, and their repurchase by a state or deposit of additional holdings to the statutory capital of commercial enterprises. This order determines terms and mechanisms for adopting the indicated decisions.

Starting in 2008 the Term of Assignment of Residents' Foreign Currency Profit to Their Currency Accounts is Extended from 90 to 180 Days

In accordance with the modified Law of Ukraine On the Order of Foreign Currency Settlement, effective as of January 1, 2008, residents' profit in foreign currency is subject to assignment to their respective currency accounts within 180 calendar days from the date of custom registration of exported products or date of signing of an act or other document, certifying the work done, services rendered or intellectual property rights exported.

In case of violation of this term a resident is obliged to pay a fine in amount of 0,3% from the uncollected profit. To exceed the indicated term a person needs to receive an individual license from the National Bank of Ukraine. Until January 1, 2008 the old 90-day term remains effective.

Starting in 2008, the State Duty for Notarial Certification of Articles of Association of Legal Entities will be UAH 17

On January 1, 2008, the Law of Ukraine on introducing alteration to the Decree of the Cabinet of Ministers of Ukraine On State Duty becomes effective. According to this Law, the state duty for notarial certification of articles of association and other constituent documents of legal entities will be 1 tax-free allowance of profits of citizens (UAH 17). Previously, articles of associations were frequently regarded as agreements, subject to valuation. State duty for notarization in such cases amounted to 1 % of agreement price.

Taxation of Profits of Non-Residents from the Sale of Real Estate

Pursuant to the modified Law of Ukraine, On Private Income Tax, effective January 1, 2007, non-residents' profit obtained from the sale of real estate objects is subject to taxation on a similar basis with residents. At the same time a maximum tax rate for residents is 5 %.

However the State Tax Administration of Ukraine together with the Ministry of Justice adhere to the position that the order of taxation does not determine the tax rate. Consequently, these state bodies believe that the rate of profit tax from the sale of real estate objects, reduced in 2007, shall not be applied to analogous profits of non-residents. Such profits of non-residents are subject to taxation at a 30% rate.

Order of Registration of Tax Inspection Results Modified

Starting as from June 30, 2007 the modified Order of registration of tax inspection results came into force. Changes relate to the order of filing objections to the inspection act and drawing of conclusions regarding the merits of such objections by tax authorities.

Pursuant to these changes, commercial enterprise officials have the right to take part in consideration of objections. In reply to objections, a state tax service authority makes rebuttal submission. This document must contain the position of tax authorities in relation to each objection, resulting in a final determination of the merits of all objections.

Law Suit against the State Committee on Entrepreneurship May Result in a New Order of State Acts Issuance

On July 2, 2007 the State Committee of Ukraine on Regulatory Policy and Entrepreneurship ceased operation of the Order of the State Land Committee dated July, 2 2003 No 174 On Adoption of a Temporary Order of Maintenance of State Register of Lands in connection with violation of basic principles of public regulatory policy.

The new order of issuing state acts by the State Land Committee will come into effect upon the date set by a decision of Ministry of Justice of Ukraine

Mortgage (or bank guarantee) now necessary for registration of intellectual property objects at the State Custom Service

From now on, the owner of intellectual property objects, prepared to register such objects at the State Custom Service for the purpose of prevention of import or export of counterfeit commodities, must furnish a mortgage in the amount of 5000 Euro, or provide a bank guarantee in like amount.

The said scheme was set by the Order of Introducing Mortgage or Equivalent Guarantee for Compensation of Expenses, Related to the Activities of Custom Organs of Ukraine in relation to providing assistance to protection of intellectual property rights (the Order), ratified by the Order of the State Custom Service of Ukraine No 520 dated June, 20, 2007.

No such mortgage was required before; it was enough to introduce a letter of guarantee, signed directly by the owner of intellectual property objects.

The purpose of a mortgage or bank guarantee is to compensate expenses incurred by custom organs, warehouse owners in connection with storage of commodities, custom registration of which was suspended, including expenses on unloading, loading, unpacking, packing, examination of consignment, etc. These funds can also be used for reimbursement of losses, related to cessation of custom registration of commodities in favour of a declarant, recipient or freight shipper or owner of commodities.

In accordance with the Order, the owner of intellectual property objects has the right to choose the type of guarantee: money deposit or bank guarantee. A guarantee must be given at the registration of intellectual property object at a state register, or in cases where a suspension of custom registration of commodities is carried out upon initiative of a custom organ - within three days after the receipt of relevant notification.

If the actual sum of expenses exceeds a guaranteed sum, the owner shall recover the incurred expenses and introduce a full guarantee sum within three days upon receipt of the relevant notification from the custom organs. Where only a part of guarantee sum was spent, the owner must supplement the guarantee with the said sum. For this purpose, the State Custom Service provides the owner with a detailed report on actual costs spent in connection with suspension of custom registration of commodities.

As from June 20, 2007 an employer is no longer obliged to pay a dismissal wage when discharging an employee in connection with a summons into military or alternative service

As of June 20, 2007 the modifications to article 44 of the Labour Code in relation to payment of dismissal wage became effective. Now, the employer is no longer obliged to pay a dismissal wage to an employee who leaves employment due to being summoned to military service or sent to alternative (unmilitary) service (para. 3, article 36 of the Labour Code of Ukraine).

Cabinet of Ministers of Ukraine to tighten the rules for entry and transit through Ukraine of foreigners and stateless persons

The Cabinet of Ministers of Ukraine adopted the Decision, On introducing alterations to the Rules for entering of foreigners and stateless persons to Ukraine, their departure from Ukraine and transit through its territory (No 917 dated July 11, 2007). In accordance with this Decision, citizens of states indicated in the list approved by the Cabinet of Ministers of Ukraine and persons without citizenship, constantly residing in the indicated states, must provide sufficient proof of their financial capability to reside on territory of Ukraine, transit through its territory and exit from Ukraine. Such persons must have financial resources in the amount of 20 living wages, given in Ukraine on the day of their entrance to the country, with calculation on every month of stay, or for a term of stay of less than one month.

The availability of such financial resources or guarantee thereof may be confirmed by presenting money facilities in the national currency of Ukraine or in a convertible foreign currency for the purposes of control; bank guarantee of Ukraine; international payment card with an extract from personal bank account of a declarant which confirms availability of financial resources; document confirming reservation or payment of habitation and feed in Ukraine; agreement on tourism services (voucher); letter of commitment from private entrepreneur or legal entity, who invited a foreigner or a stateless person, to pay all expenses, related to such person's stay in Ukraine and departure from Ukraine; a return ticket to the state of citizenship or permanent residence, or to the third state.

Changes have also been made to passport registration in the state admission point. Now, registration will cover a short-term stay period. Thus, for foreigners and stateless persons from states with a visa regime, registration covers the period of force of a visa, but no more than 90 days, unless otherwise provided by international agreements (previously this term was 6 months). For foreigners and stateless persons from states with a visa-free regime of entrance, registration covers a term of no more than 90 days within 180 days, unless otherwise provided by international agreements. On Ukraine's accession to the World Trade Organization, registration for foreigners and stateless persons from the states-members of WTO will cover a term no more than 180 days per year.

Formerly, state custom authorities were not entitled to reduce the term of residence of foreigners and stateless persons in Ukraine, but now these authorities have been granted such powers. In addition, the Rules for entrance of foreigners and stateless persons to Ukraine, their departure from Ukraine and transit through its territory, contains provision requiring filling of relevant records to the passport of a person whose term of residence in Ukraine was reduced, and records regarding the terms during which entry into the territory of Ukraine is forbidden.

Decision No 917 has not yet become effective, however it is expected, that as of its effective date, the respective legislative changes will become of high importance for foreign citizens and stateless persons crossing the state boundary of Ukraine.

Alterations to the Regulation on the order and terms of foreign currency trading introduced

As from July 15, 2007, Regulation No 192 of the National Bank of Ukraine On Introducing Alterations to the Regulation on the Order and Terms of Foreign Currency Trading dated May 23, 2007 became effective. This Act extends the list of banks empowered to notarize a copy of a loan agreement arranged for the purchase or exchange of foreign currency with the purpose of fulfilment of the obligations by residents. Formerly a copy of such loan agreement could be certified only by an authorized bank, or an agent of the Cabinet of Ministers of Ukraine, but from now on, certification can be performed by other banks as well.

In addition, clients-residents, buying (or exchanging) foreign currency for the purposes of fulfilment of debt obligations before non-residents in foreign currency, received under authority of interstate or intergovernmental agreements and agreements under state guarantees, have the right to amass the purchased currency prior to the following payment dates fixed by these agreements, on current accounts in authorized banks maintaining credits on such agreements, without limitation of its use during the period of force of the relevant agreements.